dangerous crack spread strategy

Discussion in 'Commodity Futures' started by oldtime, Jul 9, 2011.

  1. Let's say after exhaustive fundamental and technical chart studies you decide you want to buy the spread.

    You put it on at the market and enter stops on both sides.

    It's 100% guranteed you're going to get stoped out on one side, then you put on a limit order hoping to buy the spread at a better price.

    If the market chops and you and you get stopped out on both sides then you're screwed.

    If it continues to trend you get filled and then readjust the stop on the winning side and put in a new stop on the new filled side.

    And you keep doing this until you get stopped out on both sides.

    If the market trends you make about 50% on the outright trade, if it chops (and most markets chop most of the time) and you can avoid getting stopped out on both sides you make money if your original assumption that the spread will widen is correct.

    What do you think?
  2. bone

    bone ET Sponsor

    The Nymex Heating Oil and ICE Gas/Oil Cracks are a bit less chippy... but not by much.

  3. i was going to comment about how i have been into a few dangerous crack spreads too, but i didn't want to offend nutmeg...
  4. Well, it should have been obvious, the weakness of this dangerous strategy is adjusting the stop on the winning side.

    Even if you get filled on the losing side the winning side may have not moved at all.

    Plus, I need to come up with an emergency profit exit. Since I have been paper trading this, there are times when the profit is so large that the only sensible thing to do is just take it.

    But that's why I started fooling around with this dangerous strategy, because my weakness is taking a quick small profit.